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Financial Aid

That Free Financial Aid Seminar May be Just a Worthless Sales Pitch

Mark Kantrowitz

November 18, 2011

Error: Private scholarships are 2% of all available aid. From context, the speaker was refering to just grant aid, not all available aid. For students enrolled in Bachelor's degree programs, private scholarships represent 2.6% of all available aid (including loans) and 6.0% of all grant aid. Error: The out-of-pocket cost is the EFC plus unmet need. EFC plus unmet need is the same as the difference between the cost of attendance and all financial aid. That is the net cost, not the out-of-pocket cost. The out-of-pocket cost (also known as the net price) is the difference between the cost of attendance and just grants. The out-of-pocket cost is the best way of comparing college costs because it reflects the true bottom-line cost to the family. It is the amount of money the family must pay from savings, income and loans to cover the college costs. The examples given in the presentation compared two colleges based on net cost, not the out-of-pocket cost. This made one college appear to be less expensive because it included more loans in the financial aid package. But loans need to be repaid and so do not reduce college costs. Error: The government says that the average financial aid package consists of 60% loans. The correct percentage is 25%. The financial aid package does not include non-need-based loans. This figure was calculated using the data analysis system for the 2007-08 National Postsecondary Student Aid Study (NPSAS) by dividing the mean loans by the mean financial aid, with non-need-based loans excluded. If non-need-based loans like the unsubsidized Stafford loan, Parent PLUS loans and private student loans are included, the percentage is 49%. Error: Early decision reduces your aid package. There is no evidence that early decision candidates are offered less financial aid than regular decision applicants to the same college. Colleges use the same packaging philosophy for students in the early decision and regular admissions pools, with one noteworthy difference. Students who apply early decision usually satisfy the preferred deadline for applying for financial aid, and so receive financial aid offers based on a larger pool of funding. (Early decision deadlines occur before the January 1 start date for filing the FAFSA, so the initial financial aid packages are early estimates that will be replaced with a final financial aid package later.) All early decision colleges will release a student from the early decision commitment if the family feels that the financial aid package is inadequate. Early decision applicants lose the ability to compare aid offers with other colleges and to choose the college with the lowest net price. But they are not offered any less financial aid from the early decision college than they would have received if they had applied for regular admission. On the other hand, early decision applicants tend to be more affluent than regular admission applicants. The typical financial aid package received by these students will tend to be smaller as a result. But these students would not have qualified for more financial aid by applying during the regular admissions cycle.

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